No Silver Bullets
June 29, 2012 12:45 PM
(Image: ThinkStock)
Silver bullet: Bring back Glass-Steagall to wall off speculative trading from insured deposits.What's wrong: Glass-Steagall was in force at the time of the savings and loan crisis and did nothing to prevent it.(Carter Glass (l.) and Henry Steagall)
Silver bullet: Eliminate "Too Big To Fail" institutions by breaking up giant banks or declaring the government won't rescue them under any circumstances.What's wrong: Long-Term Capital Management was never regarded as TBTF, but it showed even small institutions can be so interwoven into the system that they pose systemic risk.(Image: ThinkStock)
Silver bullet: Implement the Volcker Rule to wall off FDIC-insured firms from engaging in proprietary trading.What's wrong: Regulators can't seem to agree on what constitutes prop trading. A strict interpretation could chill market-making and suck liquidity from the markets. (Image: ThinkStock)
Silver bullet: Tie senior executives' pay to the long-term performances of their banks to ensure they have "skin in the game."What's wrong: Bear Stearns and Lehman Brothers execs had lots of skin in the game and still blew up.(Dick Fuld (l.) and Jimmy Cayne; Image: Bloomberg News)
Silver bullet: Aggressively implement the Dodd-Frank Act, which was designed to make the financial system safer.What's wrong: The Sarbanes-Oxley Act was specifically drafted to prevent corporate fraud, which continues to flourish.(Image: ThinkStock)
Silver bullet: Repeal Dodd-Frank to lighten the regulatory burden, especially on community banks, and get them to start lending again.What's wrong: Dodd-Frank is expensive but it didn't cause the banking industry's problems and its repeal wouldn't eliminate them.(Image: ThinkStock)
Silver bullet: Hike capital requirements.What's wrong: Higher capital requirements will make banks less profitable and, perversely, could encourage greater risk-taking.(Image: ThinkStock)
Silver bullet: Privatize Fannie Mae and Freddie Mac to clear the decks for a private-sector mortgage market.What's wrong: The private sector has shown little appetite to step into housing in a big way.(Image: ThinkStock)
Silver bullet: Eliminate the Federal Reserve System, or at least stop it from engaging in quantitative easing.What's wrong: Some experts believe Fed stimulus has prevented economic free-fall; if they're right, its elimination could be disastrous.(Rep. Ron Paul; Image: Bloomberg News)
Silver bullet: Rely on cooperation within the new Financial Stability Oversight Council to catch problems early.What's wrong: Alan Greenspan, Ben Bernanke and Barney Frank were all dead-wrong during the housing bubble, and there's no evidence that crystal balls have improved since.(Image: ThinkStock)
